A Revenue inquiry is to focus on money-laundering through single premium policies, writes Colm Keena.
An investment adviser active in Dublin in the 1980s and 1990s says single premium insurance policies were a very attractive way of laundering "sensitive money" during the period.
The beauty of the products was that the client did not have to pay tax on the money he or she received when the policy matured, so that the money that came out when the policies matured tended to be regarded as clean money.
A range of insurance companies who were selling these products during the 1980 to 2004 period will now become involved in the next Revenue special inquiry.
Ironically, the largest seller of these sorts of policies for much of the period was probably Irish Life, then a State-owned company.
The Revenue's focus will be on the money used to set up the policies, whether it had been declared, and where it had come from.
Up to January 2001, any accumulation in value that occurred while the money was invested in the policy was taxed at a corporation tax rate, with the tax being paid by the insurance company.
When the policy matured after five, six or seven years, the money was after-tax money.
Asked where he or she got it, the person concerned could simply show the Revenue that the funds had come from an insurance policy.
It seems the Revenue was not in the habit of asking supplementary questions such as "where did you get the money that went into the policy in the first place?".
According to the adviser mentioned above, after the stock market crash in October 1987, many people cashed in their insurance policies even though they were financially punished for doing so prior to the date of maturation.
The move was affecting the adviser's business and did not seem to make sense.
Eventually, however, it emerged that banks were encouraging people to close their policies and put the funds received into bogus non-resident accounts.
Interest rates were high, there would be no tax imposed on the gains made, and the Revenue would never find out, the people were being told, according to the adviser.
The Revenue, of course, has since taken action against bogus non-resident account holders.
The scheme it designed to collect unpaid taxes - and interest and penalties - due on these accounts is now likely to be used in the Revenue's insurance policy inquiry.
The first step will be to deal with the insurance companies, seeking their assistance in making contact with former clients.
The next step will be to offer those who have liabilities the opportunity to come forward voluntarily, the carrot being that those who do so will have their interest and liability levies reduced.
The Revenue will be hoping that, by this stage, everyone with a liability will be well and truly worried.
The third step will be to pursue those who have not come forward.
This last step is where the Revenue is currently in relation to its offshore assets investigation.
People who come forward voluntarily regarding any particular Revenue scheme are obliged to make a full disclosure.
It is known that a number of people who had bogus non-resident accounts and came forward voluntarily to the Revenue, but didn't declare money that was hidden in an offshore account or offshore trust, have since been caught out.
These people suffered a double whammy. They found they were not eligible for the offshore assets voluntary disclosure scheme because of their earlier bad faith, and the interest and penalties they had saved when they came forward earlier in relation to their bogus non-resident account would now have to be paid.
Most people who came forward in relation to the Revenue's special schemes, or who were caught and had to make a settlement, have declared all their liabilities.
To date, approximately 30,000 people have had to make settlements with the Revenue arising out of its various special inquiries.
As well as bringing in more than €1.6 billion, this process has also given the Revenue a very good picture of what was going on in the world of tax evasion in Irish society in the last two decades.
Hence, its announcement of a new special inquiry - this one into a number of insurance products.
The focus of the inquiry will be on single premium insurance policies. These are policies where a person makes a lump sum payment at the outset.
However, the Revenue's inquiry will also include guaranteed growth bonds, single premium endowment policies, and unit-linked savings policies.
The period concerned will be the early 1980s up to the present day, though the focus will be on the period up to January 2001.
At that time, a change was introduced and income tax on the accumulated profits on insurance policies was levied on the client, rather than corporation tax on the insurance company.
This made the policies less attractive for those interested in tax evasion because it brought the Revenue into their affairs.
The change was introduced for technical reasons not associated with any concerns as to how the products were being used.
The likely take from this latest special inquiry by the Revenue is impossible to estimate.
In a reply this week to Fine Gael's Mr Michael Noonan TD, the Department of Finance said €33 billion of single premium insurance premiums were written in the period 1988 to 2001.
The amounts written each year grew significantly in the last four years of the period, and a lot of the policies were for non-nationals (53 per cent in 2001).
Nevertheless, the potential is significant.
If 5 per cent of the policies written were created with hot money, then you could be looking at a pot of gold worth €1.5 billion, plus interest and penalties.
And of course the €33 billion figure is only for the period back to 1988.
The chairman of the Revenue Commissioners, Mr Frank Daly, did not make any estimate yesterday as to how much he thinks this latest inquiry might yield, but indicated he believes it may be significant.
He said the whole issue has been under examination by the Revenue for some time and nothing found has "convinced us that this will not be a significant investigation".
He said Revenue's information to date has come from its other special inquiries, and "contacts with people who knew what was going on in the area".
There will now be a full investigation, "there is no doubt about that".
He couldn't estimate what the inquiry would yield, "but the figures are very, very big".
There were 16 companies with their HQs in the State selling the premiums during the period, and a further 10 with their HQs abroad but who were selling business here.
"We will be focusing on some rather than others because of factors that have emerged," Mr Daly said.
The initial focus will fall on 10 to 12 companies, he added, not naming any.
The taxes involved are likely to be income tax and capital gains tax.
Mr Daly mentioned that money put through insurance policies may also have gone into offshore trusts, perhaps indicating another way in which the Revenue's various diverse inquiries are shedding light on each other.
Some of the earlier special inquiries are well-advanced and the new year will see the focus switch to insurance products.
Mr Daly indicated inquiries into the use of credit cards for tax evasion and the use of property are also likely.
He was clear in his view yesterday that he believes all of these matters are cleaning up exercises to do with the bad old days.
Tax evasion on the scale indicated by the €1.6 billion haul from the various special inquiries to date is no longer a feature of the tax scene, the Revenue chairman believes.
Net amount of single premium life insurance written between 1988 and 2001: ... euro 000's:
1988 ... 708,544
1989 ... 954,144
1990 ... 707,147
1991 ... 662,157
1992 ... 438,893
1993 ... 686,920
1994 ... 750,906
1995 ... 732,456
1996 ... 1,182,035
1997 ... 1,868,511
1998 ... 3,261,874
1999 ... 5,211,852
2000 ... 7,556,644
2001 ... 8,803,823
Special inquiries:
The Revenue Commissioners' various special inquiries into taxation irregularities have now brought in €1.6 billion, the chairman of the Revenue Commissioners, Mr Frank Daly, told the Dáil Committee of Public Accounts yesterday.
Bogus non-resident accounts: €782 million;
Offshore assets investigation: €705 million;
NIB/CMI: €53 million;
Ansbacher: €44 million;
Tribunals: €25 million.
